DAVITA INC

Previous wording

This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that are forward-looking statements within the meaning of the federal securities laws and as such are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements could include, among other things, statements about our balance sheet and liquidity, our expenses, revenues, billings and collections, patient census, availability or cost of supplies, treatment volumes, mix expectation, such as the percentage or number of patients under commercial insurance, the effects of the recent Change Healthcare (CHC) cybersecurity outage on us or our operations, current macroeconomic, marketplace and labor market conditions, and overall impact on our patients and teammates, as well as other statements regarding our future operations, financial condition and prospects, capital allocation plans, expenses, cost saving initiatives, other strategic initiatives, use of contract labor, government and commercial payment rates, expectations related to value-based care (VBC), integrated kidney care (IKC), Medicare Advantage (MA) plan enrollment and our international operations, expectations regarding increased competition and marketplace changes, including those related to new or potential entrants in the dialysis and pre-dialysis marketplace and the potential impact of innovative technologies, drugs, or other treatments on the dialysis industry, expectations regarding the impact of our continuing cost-savings initiatives and our stock repurchase program. All statements in this report, other than statements of historical fact, are forward-looking statements. Without limiting the foregoing, statements including the words "expect," "intend," "will," "could," "plan," "anticipate," "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on DaVita's current expectations and are based solely on information available as of the date of this report. DaVita undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise, except as may be required by law. Actual future events and results could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things:

Current wording

This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that are forward-looking statements within the meaning of the federal securities laws and as such are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements could include, among other things, statements about our balance sheet and liquidity, our expenses, revenues, billings and collections, patient census, availability or cost of supplies, including without limitation the impact of the reduction in clinical and other supplies delivered to DaVita by Baxter International Inc. or its subsidiaries (collectively, Baxter) due to closures of Baxter facilities following Hurricane Helene, treatment volumes, mix expectation, such as the percentage or number of patients under commercial insurance, the effects of the recent Change Healthcare (CHC) cybersecurity outage on us and our operations, current macroeconomic, marketplace and labor market conditions, and overall impact on our patients and teammates, as well as other statements regarding our future operations, financial condition and prospects, capital allocation plans, expenses, cost saving initiatives, other strategic initiatives, use of contract labor, government and commercial payment rates, expectations related to value-based care (VBC), integrated kidney care (IKC), Medicare Advantage (MA) plan enrollment and our international operations, expectations regarding increased competition and marketplace changes, including those related to new or potential entrants in the dialysis and pre-dialysis marketplace and the potential impact of innovative technologies, drugs, or other treatments on the dialysis industry, expectations regarding the impact of our continuing cost-savings initiatives and our stock repurchase program. All statements in this report, other than statements of historical fact, are forward-looking statements. Without limiting the foregoing, statements including the words "expect," "intend," "will," "could," "plan," "anticipate," "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on DaVita's current expectations and are based solely on information available as of the date of this report. DaVita undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise, except as may be required by law. Actual future events and results could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things:

Previous wording

•current macroeconomic and marketplace conditions, including without limitation, the impact of global events and political or governmental volatility; the impact of the domestic political environment and related developments on the current healthcare marketplace and on our business; the continuing impact of the COVID-19 pandemic on our operations, reputation, financial condition and the chronic kidney disease (CKD) population and our patient population; the potential impact of new or potential entrants in the dialysis and pre-dialysis marketplace and potential impact of innovative technologies, drugs, or other treatments on our patients and industry; supply chain challenges and disruptions, including without limitation with respect to certain of our equipment and clinical supplies; elevated teammate turnover or labor costs; the impact of continued increased competition from dialysis providers and others; and our ability to respond to challenging U.S. and global economic and marketplace conditions, including, among other things, our ability to successfully identify cost saving opportunities and to invest in and implement cost saving initiatives;

Current wording

•current macroeconomic and marketplace conditions, including without limitation, the impact of global events and political or governmental volatility; the impact of the domestic political environment and related developments on the current healthcare marketplace, our patients and on our business; the continuing impact of the COVID-19 pandemic on our operations, reputation, financial condition and the chronic kidney disease (CKD) population and our patient population; supply chain challenges and disruptions, including without limitation with respect to certain key services provided to us and certain critical clinical supplies and equipment, and including any impacts on our supply chain as a result of natural disasters; the potential impact of new or potential entrants in the dialysis and pre-dialysis marketplace and potential impact of innovative technologies, drugs, or other treatments on our patients and industry; elevated teammate turnover or labor costs; the impact of continued increased competition from dialysis providers and others; and our ability to respond to challenging U.S. and global economic and marketplace conditions, including, among other things, our ability to successfully identify cost saving opportunities and to invest in and implement cost saving initiatives;

Previous wording

•our reliance on significant suppliers, service providers and other third party vendors to provide key support to our business operations and enable our provision of services to patients, such as, among others, CHC and suppliers of certain pharmaceuticals or critical clinical products;

Current wording

•our reliance on significant suppliers, service providers and other third party vendors to provide key support to our business operations and enable our provision of services to patients, such as, among others, CHC, Baxter and other suppliers of certain pharmaceuticals, services or critical clinical products; and risks resulting from a closure, reduction or other disruption in the services or products provided to us by such suppliers, service providers and third party vendors, such as the closure of certain Baxter manufacturing facilities following Hurricane Helene;

Previous wording

•our ability to attract, retain and motivate teammates and our ability to manage operating cost increases or productivity decreases whether due to union organizing activities, legislative or other changes, demand for labor, volatility and uncertainty in the labor market, the current challenging and highly competitive labor market conditions, or other reasons;

Current wording

•our ability to attract, retain and motivate teammates and our ability to manage potential disruptions to our business and operations, including potential work stoppages, operating cost increases or productivity decreases whether due to union organizing activities, legislative or other changes, demand for labor, volatility and uncertainty in the labor market, the current challenging and highly competitive labor market conditions, including due to the ongoing nationwide shortage of skilled clinical personnel, or other reasons;

Previous wording

•the variability of our cash flows, including, without limitation, any extended billing or collections cycles including, without limitation, due to defects or operational issues in our billing systems or in the billing systems or services of third parties on which we rely, such as the operational issues at CHC resulting from a recent cyberattack; the risk that we may not be able to generate or access sufficient cash in the future to service our indebtedness or to fund our other liquidity needs; and the risk that we may not be able to refinance our indebtedness as it becomes due, on terms favorable to us or at all;

Current wording

•the variability of our cash flows, including, without limitation, any extended billing or collections cycles including, without limitation, due to defects or operational issues in our billing systems or in the billing systems or services of third parties on which we rely, such as the operational issues at CHC resulting from a recent cyberattack; the risk that we may not be able to generate or access sufficient cash in the future to service our indebtedness or to fund our other liquidity needs;

Previous wording

Developments in general economic and market conditions have directly and indirectly impacted the Company and in the future could have a material adverse impact on our patients, teammates, physician partners, suppliers, business, operations, reputation, financial condition, results of operations, share price, cash flows and/or liquidity. Many of these external factors and conditions are interrelated, including, among other things, inflation, potential interest rate volatility and other economic conditions, labor market conditions, wage pressure, the impact of COVID-19 on the mortality rates of our patients and other ESKD or CKD patients, supply chain challenges and the potential impact and application of innovative technologies, drugs or other treatments. Certain of these impacts could be further intensified by concurrent global events such as the ongoing conflicts between Russia and Ukraine and in Israel, Gaza and the surrounding areas, which have continued to drive sociopolitical and economic uncertainty across the globe.

Current wording

Developments in general economic and market conditions have directly and indirectly impacted the Company and in the future could have a material adverse impact on our patients, teammates, physician partners, suppliers, business, operations, reputation, financial condition, results of operations, share price, cash flows and/or liquidity. Many of these external factors and conditions are interrelated, including, among other things, inflation, potential interest rate volatility and other economic conditions, labor market conditions, wage pressure, the increased mortality rates of our patients and other ESKD or CKD patients, supply chain challenges and the potential impact and application of innovative technologies, drugs or other treatments. Certain of these impacts could be further intensified by concurrent global events such as the ongoing conflicts between Russia and Ukraine and in Israel, Gaza and the surrounding areas, which have continued to drive sociopolitical and economic uncertainty across the globe, as well as severe weather events and other natural disasters, such as Hurricane Helene and Hurricane Milton, which have impacted national supply chain challenges, among other things.

Previous wording

In the second quarter of 2024, treatment per day volumes were higher compared to the first quarter of 2024. While census gains in the quarter helped to drive this increase, we continue to experience a negative impact on revenue and treatment volume due to, among other things, elevated mortality rates of our patients in comparison to the periods prior to the pandemic and the associated adverse impact on our patient census. Treatment volumes during the year have been and may continue to be adversely impacted by higher than expected missed treatment rates, which to date have been driven primarily by severe weather events. In addition, new-to-dialysis admission rates, treatment volumes, future revenues and non-acquired growth, among other things, could continue to be negatively impacted over time to the extent that the ESKD and CKD populations experience sustained elevated mortality levels. The magnitude of these cumulative impacts could have a material adverse impact on our results of operations, financial condition and cash flows.

Current wording

In the third quarter of 2024, treatment per day volumes were generally flat compared to the second quarter of 2024. We continue to experience a negative impact on revenue and treatment volume due to, among other things, elevated mortality rates of our patients in comparison to the periods prior to the pandemic and the associated adverse impact on our patient census. Treatment volumes during the year have been and may continue to be adversely impacted by higher than expected missed treatment rates, which during the quarter were driven primarily by severe weather events. In addition, new-to-dialysis admission rates, treatment volumes, future revenues and non-acquired growth, among other things, could continue to be negatively impacted over time to the extent that the ESKD and CKD populations experience sustained elevated mortality levels. The magnitude of these cumulative impacts could have a material adverse impact on our results of operations, financial condition and cash flows.

Previous wording

Ongoing global economic conditions and political and regulatory developments, such as general labor, supply chain and inflationary pressures have increased, and will likely continue to increase, our expenses, including, among others, staffing, labor, and supply costs. We have significant suppliers and service providers, with a substantial portion of our total vendor spend concentrated with a limited number of third party suppliers and service providers. These third party suppliers and service providers include, without limitation, providers performing certain key functions for us such as claims processing functions, suppliers of pharmaceuticals or clinical products that may be the primary source of products critical to the services we provide, or to which we have committed obligations to make purchases, sometimes at particular prices. It may be difficult, costly and time consuming for us to transition away from any of these significant suppliers and service providers. We have experienced service disruptions relating to key business functions and supply chain shortages with respect to certain of our equipment and clinical supplies, including critical supplies, and there can be no assurance that our third party suppliers and service providers will provide, or continue to provide, the services or products that we require. If our significant suppliers and service providers do not meet our needs, and we are not able to find adequate alternative sources for these products or services on a timely basis, it could require us to make significant operational changes, could impact our ability to provide dialysis services we offer, and could otherwise have a material adverse impact on our business, results of operations, financial condition and cash flows. We continue to evaluate the risk of future supply chain shortages, including by assessing alternative sources for supplies critical to the services we provide. For further discussion of the risks related to our supplier needs, see the discussion in the risk factors in Part I, Item 1A Risk Factors of our 2023 10-K under the heading, "If certain of our suppliers do not meet our needs..."

Current wording

Ongoing global economic conditions and political and regulatory developments, such as general labor, supply chain and inflationary pressures have increased, and will likely continue to increase, our expenses, including, among others, staffing, labor, and supply costs. We have significant suppliers and service providers, with a substantial portion of our total vendor spend concentrated with a limited number of third party suppliers and service providers. These third party suppliers and service providers include, without limitation, providers performing certain key functions for us such as claims processing functions, suppliers of pharmaceuticals or clinical products that may be the primary source of products critical to the services we provide, or to which we have committed obligations to make purchases, sometimes at particular prices. It may be difficult, costly and time consuming for us to transition away from any of these significant suppliers and service providers. We have experienced service disruptions relating to key business functions and supply chain shortages with respect to certain of our equipment and clinical supplies, including critical clinical and other supplies. While we have made certain operational changes in response to the foregoing, there can be no assurance that a future shortage or disruption would not require additional resources or further operational changes in the future.

Previous wording

We continue to experience elevated levels of compensation compared to the prior year. We expect certain of these increased staffing and labor costs to continue, due to, among other factors, the continuation of a challenging healthcare labor market. The cumulative impact of these increased costs could be material. In addition, potential staffing shortages or other potential developments or disruptions related to our teammates, if material, could ultimately lead to the unplanned closures of certain centers or adversely impact clinical operations, or may otherwise have a material adverse impact on our ability to provide dialysis services or the cost of providing those services, among other things. Our industry has also experienced increased union organizing activities, including the filing of petitions by a union at certain of our clinics in California and at certain of our competitors' clinics, with certain of our competitors' clinics ultimately voting to unionize. We are engaging with our teammates at clinics where union petitions have been filed to respond to these petitions and future elections. Regardless of the outcome of these discussions, other teammates at other clinics may file similar petitions in the future, and these petitions, if filed, may lead to additional elections. If a significant portion of our teammates were to become unionized, we could experience, among other things, potential work stoppages or other business disruptions; adverse impacts to our financial results due to the costs of bargaining or implementing a grievance procedure and processing grievances; decreases in our operational flexibility and efficiency; or negative impacts on our employee culture. In addition, we are and may continue to be subject to targeted corporate campaigns by union organizers in response to which we have been and expect to continue to be required to expend substantial resources, both time and financial. Any of these events or circumstances, including our responses to such events or circumstances, could have a material adverse effect on our employee relations, treatment growth, productivity, business, results of operations, financial condition, cash flows and reputation. For further discussion of the risks related to rising labor costs and union organizing activities, see the discussion in the risk factors in Part I, Item 1A Risk Factors of our 2023 10-K under the heading, "Our business is labor intensive..."

Current wording

During the quarter we continued to pay elevated compensation levels to our teammates compared to the prior year. We expect certain of these increased staffing and labor costs to continue, due to, among other factors, the continuation of a challenging healthcare labor market. The cumulative impact of these increased costs could be material. In addition, potential staffing shortages or other potential developments or disruptions related to our teammates, if material, could ultimately lead to the unplanned closures of certain centers or adversely impact clinical operations, or may otherwise have a material adverse impact on our ability to provide dialysis services or the cost of providing those services, among other things. Our industry has also experienced increased union organizing activities. For example, union petitions have been filed in nine of our clinics in California and eight of these petitions are in different stages of the voting process and have been subject to legal challenges. We also have experienced a week-long attempted union-related work stoppage in these eight clinics, which concluded without impacting our ability to provide patient care. Regardless of the outcome of the ongoing elections, other teammates at other clinics may file similar petitions in the future, and these petitions, if filed, may lead to additional elections. If a significant portion of our teammates were to become unionized, we could experience, among other things, potential additional work stoppages or other business disruptions; adverse impacts to our financial results due to the costs of bargaining or implementing a grievance procedure and processing grievances; decreases in our operational flexibility and efficiency; or negative impacts on our employee culture. In addition, we are and may continue to be subject to targeted corporate campaigns by union organizers in response to which we have been and expect to continue to be required to expend substantial resources, both time and financial. Any of these events or circumstances, including our responses to such events or circumstances, could have a material adverse effect on our employee relations, treatment growth, productivity, business, results of operations, financial condition, cash flows and reputation. For further discussion of the risks related to rising labor costs and union organizing activities, see the discussion in the risk factors in Part I, Item 1A Risk Factors of our 2023 10-K under the heading, "Our business is labor intensive..."

Previous wording

The impact of the pandemic on our patient population combined with the cost inflation trends and the inability of government reimbursement rates to keep pace with these cost trends, have put pressure on our existing cost structure, and we expect that certain of those increased costs will persist as inflationary and supply chain pressures and challenging labor market conditions continue, each as noted above. During the second quarter of 2024, we continued to invest in and implement cost savings initiatives designed to help mitigate these cost and volume pressures. These include identified cost savings related to the achievement of general and administrative cost efficiencies through ongoing initiatives, including, among others, those that increase our use of third party service providers to perform certain activities. These opportunities and investments also include, among others, initiatives relating to clinic optimization, capacity utilization improvement and procurement opportunities, as well as investments in revenue cycle management. We have incurred, and expect to continue to incur, charges in connection with the continued implementation of certain of these initiatives. There can be no assurance that we will be able to successfully execute these initiatives or that they will achieve expectations or succeed in helping offset the impact of these challenging conditions.

Current wording

The impact of the pandemic on our patient population combined with the cost inflation trends and the inability of government reimbursement rates to keep pace with these cost trends, have put pressure on our existing cost structure, and we expect that certain of those increased costs will persist as inflationary and supply chain pressures and challenging labor market conditions continue, each as noted above. During the third quarter of 2024, we continued to invest in and implement cost savings initiatives designed to help mitigate these cost and volume pressures. These include identified cost savings related to the achievement of general and administrative cost efficiencies through ongoing initiatives, including, among others, those that increase our use of third party service providers to perform certain activities. These opportunities and investments also include, among others, initiatives relating to clinic optimization, capacity utilization improvement and procurement opportunities, as well as investments in revenue cycle management. We have incurred, and expect to continue to incur, charges in connection with the continued implementation of certain of these initiatives. There can be no assurance that we will be able to successfully execute these initiatives or that they will achieve expectations or succeed in helping offset the impact of these challenging conditions.

Previous wording

As previously reported, on April 23, 2024, the Federal Trade Commission (FTC) published a final rule that would generally ban all post-employment non-compete clauses with employees and prohibit employers from enforcing existing non-compete clauses in contracts with workers, with limited exceptions. The rule has been enjoined in at least one legal challenge, with a final decision expected in that case by August 30, 2024. The legal challenge may impact FTC's targeted effective date of September 4, 2024. We are continuing to assess the potential impact of the rule on our business, but if the final rule is implemented as currently contemplated, it could have an adverse impact on, among other things, our agreements with teammates, our arrangements with medical directors, or the terms of our existing agreements with physicians. There are also other legislative efforts, including in Congress and more than half of the states' legislatures, that seek to place restrictions on non-compete agreements between employers and workers. While few of these states have passed such legislation that impacted our business, it is possible that similar legislation could be introduced in 2024. Any failure on our part to adequately adjust to this rule, any state follow-on regulations and the potential impact thereof could have a material adverse effect on our business, results of operations, financial condition, cash flows and reputation.

Current wording

As previously reported, on May 7, 2024, the Federal Trade Commission (FTC) published in the federal register a final rule that would generally ban all post-employment non-compete clauses with employees and prohibit employers from enforcing existing non-compete clauses in contracts with workers, with limited exceptions. On August 20, 2024, a federal court issued an injunction against the rule, preventing the FTC from enforcing it nationwide. As result, the FTC cannot implement or enforce its rule against any employer without violating the nationwide ban. The FTC is considering whether to appeal. Even though the rule has been enjoined, many state legislatures continue to introduce legislation that seeks to place limitations on restrictive covenants with workers. While few of these states have passed legislation that has directly affected our business, it is possible that new legislation could be introduced in the future. We are continuing to assess the potential impact of the rule as well as Congressional and state legislative efforts on our business. Such efforts, if successful, could have an adverse impact on, among other things, our agreements with teammates, our arrangements with medical directors, or the terms of our existing agreements with physicians. Any failure on our part to adequately adjust to any state regulations or future federal or state regulations and the potential impact thereof could have a material adverse effect on our business, results of operations, financial condition, cash flows and reputation.

Previous wording

Since receiving the initial notice from CHC regarding the CHC Outage, we have been reviewing and monitoring our information technology infrastructure and network environment, including specifically for the indicators of compromise identified by CHC and its agents. While there can be no assurances, we do not believe our information technology systems have been affected based on the information available to date. We have dedicated and expect to continue to dedicate resources to help resolve the impact of this temporary outage, including, among other things, administrative processes related to collections for services rendered and resolution of disputes such as retractions from and refunds to commercial and government payors, and the CHC Outage may continue to increase the risks associated with billing and collections. While the CHC Outage has not impacted our ability to provide care to our patients in the ordinary course and we do not currently expect the outage to have a material impact on our operations, financial condition or results of operation, the ultimate impact of the CHC Outage remains subject to future developments and risks that are difficult to predict. These risks may include, among other things, a recurrence of system outages or service suspensions or the risk that our information technology systems or our proprietary information and sensitive or confidential data, including PHI or PII, may have been compromised through the CHC Outage, any of which may have a material adverse effect on our business, results of operations, financial condition, cash flows or reputation. For a further discussion of the risks associated with outages, disruptions or incidents at third parties on which we rely, see the risk factors in Part I, Item 1A of our 2023 10-K under the headings, "Failing to effectively maintain, operate or upgrade our information systems or those of third-party service providers upon which we rely..." and "Privacy and information security laws are complex…"

Current wording

CHC has publicly reported online and in notices to affected individuals that it identified protected health information (PHI), or personally identifiable information (PII), from users of the CHC systems, and while CHC has been conducting investigations and data forensics, to date, we have not been informed that any of our data, including any PHI or PII from our patients, was impacted by the CHC Outage. However, the ultimate impact of the CHC Outage remains subject to future developments and risks that are difficult to predict. These risks may include, among other things, a recurrence of system outages or service suspensions or the risk that our information technology systems or our proprietary information and sensitive or confidential data, including PHI or PII, may have been compromised through the CHC Outage, any of which may have a material adverse effect on our business, results of operations, financial condition, cash flows and reputation. For a discussion of the risks associated with outages, disruptions or incidents at third parties on which we rely, see the risk factors in Part I, Item 1A of our 2023 10-K under the headings, "Failing to effectively maintain, operate or upgrade our information systems or those of third-party service providers upon which we rely..." and "Privacy and information security laws are complex…"

Previous wording

The discussion below includes analysis of our financial condition and results of operations for the three months ended June 30, 2024 compared to the three months ended March 31, 2024, and the year-to-date periods for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

The discussion below includes analysis of our financial condition and results of operations for the three months ended September 30, 2024 compared to the three months ended June 30, 2024, and the year-to-date periods for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Previous wording

Our U.S. dialysis treatment volume is directly correlated with our operating revenues and expenses. The increase in our U.S. dialysis treatments for the second quarter of 2024 from the first quarter of 2024 was primarily driven by increased average treatments per day due to increased patient count from acquired treatment growth.

Current wording

Our U.S. dialysis treatment volume is directly correlated with our operating revenues and expenses. The increase in our U.S. dialysis treatments for the third quarter of 2024 from the second quarter of 2024 was primarily driven by one additional treatment day, partially offset by an increase in missed treatments and decreased patient count. The increase in our U.S. dialysis treatments for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 was primarily driven by one additional treatment day and increased treatments from acquired and non-acquired treatment growth.

Previous wording

U.S. dialysis average patient service revenue per treatment for the second quarter of 2024 compared to the first quarter of 2024 increased primarily due to normal seasonal improvements driven by patients meeting their co-insurance and deductibles and increases in average reimbursement rates due to normal annual rate increases, partially offset by unfavorable changes in mix.

Current wording

U.S. dialysis average patient service revenue per treatment for the third quarter of 2024 compared to the second quarter of 2024 increased primarily due to increases in average reimbursement rates and other normal fluctuations.

Previous wording

U.S. dialysis average patient service revenue per treatment for the six months ended June 30, 2024 increased compared to the six months ended June 30, 2023 primarily driven by the increase in average reimbursement rates from normal annual rate increases including Medicare rate increases, as well as revenue cycle improvements, favorable changes in mix and an increase in hospital inpatient dialysis rates.

Current wording

U.S. dialysis average patient service revenue per treatment for the nine months ended September 30, 2024 increased compared to the nine months ended September 30, 2023 primarily driven by the increase in average reimbursement rates from normal annual rate increases including Medicare rate increases, as well as revenue cycle improvements, favorable changes in mix and an increase in hospital inpatient dialysis rates.

Previous wording

Closure costs. During the third quarter of 2023, we continued the strategic review of our outpatient clinic capacity requirements and utilization, which have been significantly impacted by declines in our patient census due to the COVID-19 pandemic. This continuing review, begun in the third quarter of 2022, has resulted in higher than normal charges for center capacity closures over the last several quarters. These capacity closure costs include net losses on assets retired, lease termination costs, asset impairments and accelerated depreciation and amortization.

Current wording

Closure costs. In the third quarter of 2022, we began a strategic review of our outpatient clinic capacity requirements and utilization, which had been significantly impacted by declines in our patient census due to the COVID-19 pandemic. This review continued through 2023, and has resulted in higher than normal charges for center capacity closures over the last several quarters. These capacity closure costs include net losses on assets retired, lease termination costs, asset impairments and accelerated depreciation and amortization.

Previous wording

During the second quarter of 2024, we incurred charges for U.S. dialysis center closures of approximately $15.3 million, which increased our patient care costs by $6.5 million, our general and administrative expenses by $8.7 million and our depreciation and amortization expense by $0.1 million. By comparison, during the first quarter of 2024, U.S. dialysis center closures were approximately $14.6 million, which increased our patient care costs by $3.3 million, our general and administrative expenses by $7.1 million and our depreciation and amortization expense by $4.2 million.

Current wording

During the third quarter of 2024, we incurred charges for U.S. dialysis center closures of approximately $18.3 million, which increased our patient care costs by $3.5 million, our general and administrative expenses by $3.8 million and our depreciation and amortization expense by $11.0 million. By comparison, during the second quarter of 2024, charges for U.S. dialysis center closures were approximately $15.3 million, which increased our patient care costs by $6.5 million, our general and administrative expenses by $8.7 million and our depreciation and amortization expense by $0.1 million.

Previous wording

During the six months ended June 30, 2024, U.S. dialysis center closures were approximately $29.9 million, which increased our patient care costs by $9.8 million, our general and administrative expenses by $15.8 million and our depreciation and amortization expense by $4.3 million. By comparison, during the six months ended June 30, 2023, U.S. dialysis center closures were approximately $43.3 million, which increased our patient care costs by $18.3 million, our general and administrative expenses by $12.6 million and our depreciation and amortization expense by $12.4 million.

Current wording

During the nine months ended September 30, 2024, charges for U.S. dialysis center closures were approximately $48.2 million, which increased our patient care costs by $13.3 million, our general and administrative expenses by $19.6 million and our depreciation and amortization expense by $15.3 million. By comparison, during the nine months ended September 30, 2023, charges for U.S. dialysis center closures were approximately $67.3 million, which increased our patient care costs by

Previous wording

Severance costs. During the fourth quarter of 2022, we committed to a plan to increase efficiencies and cost savings in certain general and administrative support functions. As a result of this plan, we recognized expenses related to termination and other benefit commitments in our U.S. dialysis business. This plan included additional charges of $21.9 million during the six months ended June 30, 2023.

Current wording

Severance costs. During the fourth quarter of 2022, we committed to a plan to increase efficiencies and cost savings in certain general and administrative support functions. As a result of this plan, we recognized expenses related to termination and other benefit commitments in our U.S. dialysis business. This plan included charges of $26.3 million during the nine months ended September 30, 2023.

Previous wording

Patient care costs. U.S. dialysis patient care costs per treatment for the second quarter of 2024 increased from the first quarter of 2024 primarily due to increases in other direct operating expenses associated with our dialysis centers, health benefit expense, medical supplies expense, insurance costs and center closure costs. These increases were partially offset by decreased compensation expenses including seasonal decreases in payroll taxes and decreased travel costs. Additionally, our fixed other direct operating expenses positively impacted patient care costs per treatment due to increased treatments in the second quarter of 2024, as well as decreased professional fees and decreased pharmaceutical unit costs.

Current wording

Patient care costs. U.S. dialysis patient care costs per treatment for the third quarter of 2024 increased from the second quarter of 2024 primarily due to increased compensation expenses, including increased wage rates and payroll taxes. Patient care costs per treatment were also affected by increases in health benefit expense and other direct operating expenses associated with our dialysis centers, including seasonal increases in utilities expense, as well as increased minor equipment expense. These increases were partially offset by decreases in insurance costs and travel costs. Additionally, our fixed other direct operating expenses positively impacted patient care costs per treatment due to increased treatments in the third quarter of 2024. Patient care costs per treatment were also favorably impacted by decreased medical supplies expense, professional fees and center closure costs.

Previous wording

U.S. dialysis patient care costs per treatment for the six months ended June 30, 2024 increased from the six months ended June 30, 2023 primarily due to increased compensation expenses, including increased wage rates and headcount, as well as increases in insurance costs, medical supplies expense and health benefits expense. These increases were partially offset by decreased contract wages, contributions to charitable organizations, other direct operating expenses associated with our dialysis centers and center closure costs. Patient care costs per treatment were also favorably impacted by decreased IT-related costs, pharmaceutical unit costs, tax and license costs and professional fees. In addition, our fixed other direct operating expenses favorably impacted patient care costs per treatment due to increased treatments in 2024.

Current wording

U.S. dialysis patient care costs per treatment for the nine months ended September 30, 2024 increased from the nine months ended September 30, 2023 primarily due to increased compensation expenses, including increased wage rates and headcount, as well as increases in health benefit expense, medical supplies expense, insurance costs and other direct operating expenses associated with our dialysis centers, including lower expense in the nine months ended 2023 related to our virtual power purchase arrangements. These increases were partially offset by decreased contributions to charitable organizations, contract wages, center closure costs, IT-related costs and professional fees.

Previous wording

General and administrative expenses. U.S. dialysis general and administrative expenses in the second quarter of 2024 increased from the first quarter of 2024 primarily due to increased compensation expenses, professional fees, center closure costs and long-term incentive compensation. These increases were partially offset by a decrease in advocacy costs.

Current wording

General and administrative expenses. U.S. dialysis general and administrative expenses in the third quarter of 2024 increased from the second quarter of 2024 primarily due to increased advocacy costs, compensation expenses, IT-related costs, travel costs and professional fees. These increases were partially offset by a decrease in center closure costs.

Previous wording

U.S. dialysis general and administrative expenses for the six months ended June 30, 2024 increased from the six months ended June 30, 2023 due to increased advocacy costs, primarily related to a refund received in 2023 related to 2022 advocacy costs, as well as increases in IT-related costs and compensation expenses including increased wage rates. Other drivers of this change include increased professional fees and center closure costs. These increases were partially offset by decreased severance costs, as described above.

Current wording

U.S. dialysis general and administrative expenses for the nine months ended September 30, 2024 increased from the nine months ended September 30, 2023 due to increased compensation expenses, including increased wage rate and headcount, as well as increases in advocacy costs, including a refund received in 2023 related to 2022 advocacy costs. Other drivers of this change include increases in IT-related costs, contract wages, center closure costs and professional fees. These increases were partially offset by decreased severance costs, as described above, and contributions to charitable organizations.

Previous wording

Depreciation and amortization. U.S. dialysis depreciation and amortization expenses for the quarter ended June 30, 2024 decreased compared to the quarter ended March 31, 2024 primarily due to decreases in depreciation related to corporate IT projects and accelerated depreciation related to center closures.

Current wording

Depreciation and amortization. U.S. dialysis depreciation and amortization expenses in the third quarter of 2024 increased compared to the second quarter of 2024 primarily due to increased accelerated depreciation related to center closures.

Previous wording

U.S. dialysis depreciation and amortization expenses for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 decreased primarily due to decreased accelerated depreciation related to center closures.

Current wording

U.S. dialysis depreciation and amortization expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 decreased primarily due to decreased accelerated depreciation related to center closures.

Previous wording

Equity investment income. U.S. dialysis equity investment income remained relatively flat for the second quarter of 2024 compared to the first quarter of 2024. Equity investment income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 decreased due to the consolidation of a previously nonconsolidated dialysis partnership in the first quarter of 2024.

Current wording

Equity investment income. U.S. dialysis equity investment income for the third quarter of 2024 compared to the second quarter of 2024 increased due to increased profitability at certain nonconsolidated dialysis partnerships. Equity investment income for the nine months ended September 30, 2024 decreased compared to the nine months ended September 30, 2023 due to the consolidation of a previously nonconsolidated dialysis partnership in the first quarter of 2024, partially offset by increased profitability at certain nonconsolidated dialysis partnerships.

Previous wording

U.S. dialysis operating income for the second quarter of 2024 compared to the first quarter of 2024 was impacted by a gain on changes in ownership interest, as described above. U.S. dialysis operating income and adjusted operating income for the second quarter of 2024 compared to the first quarter of 2024 were positively impacted by increased average patient service revenue per treatment and dialysis treatments, as described above. Operating income and adjusted operating income were also positively impacted by decreases in depreciation, as described above, travel costs and compensation expenses, as described above. Operating income and adjusted operating income were negatively impacted by increased other direct operating expenses associated with our dialysis centers, medical supplies expense, health benefit expense and insurance costs.

Current wording

U.S. dialysis operating income for the third quarter of 2024 compared to the second quarter of 2024 was negatively impacted by increased compensation expenses, health benefit expense and other direct operating expenses associated with our dialysis centers, including seasonal increases in utilities expense. Operating income was also negatively impacted by increased advocacy costs, center closure costs, as described above, IT-related costs and minor equipment expense. Operating income was positively impacted by increased average patient service revenue per treatment and dialysis treatments, as described above, as well as decreased insurance costs.

Previous wording

U.S. dialysis operating income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was impacted by a gain on changes in ownership interest and severance costs, as described above. U.S. dialysis operating income and adjusted operating income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 were positively impacted by an increase in average patient service revenue per treatment and dialysis treatments, as described above. Operating income and adjusted operating income for the six months ended June 30, 2024 were also positively impacted by decreases in center closure costs, contributions to charitable organizations, contract wages, other direct operating expenses associated with our dialysis centers and pharmaceutical unit costs. Operating income and adjusted operating income were negatively impacted by increases in compensation expenses, insurance costs, medical supplies expense, advocacy costs including the refund described above, and health benefit expense.

Current wording

U.S. dialysis operating income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was impacted by a gain on changes in ownership interest and severance costs, as described above. U.S. dialysis operating income and adjusted operating income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 were positively impacted by an increase in average patient service revenue per treatment and dialysis treatments, as described above. Operating income and adjusted operating income were also positively impacted by decreases in contributions to charitable organizations, center closure costs, as described above, and contract wages. Operating income and adjusted operating income were negatively impacted by increases in compensation expenses, health benefit expense, medical supplies expense and advocacy costs, including the refund described above. Operating income and adjusted operating income were also negatively impacted by increases in insurance costs, IT-related costs and other direct operating expenses associated with our dialysis centers.

Previous wording

As of June 30, 2024, DaVita IKC provided integrated care and disease management services to approximately 71,300 patients in risk-based integrated care arrangements and to an additional 15,200 patients in other integrated care arrangements. We also expect to add additional service offerings to our business and pursue additional strategic initiatives in the future as circumstances warrant, which could include, among other things, healthcare services not related to kidney disease.

Current wording

As of September 30, 2024, DaVita IKC provided integrated care and disease management services to approximately 69,500 patients in risk-based integrated care arrangements and to an additional 13,900 patients in other integrated care arrangements. We also expect to add additional service offerings to our business and pursue additional strategic initiatives in the future as circumstances warrant, which could include, among other things, healthcare services not related to kidney disease.

Previous wording

As of June 30, 2024, our international dialysis operations provided dialysis and administrative services through a total of 452 outpatient dialysis centers located in 13 countries outside of the United States.

Current wording

As of September 30, 2024, our international dialysis operations provided dialysis and administrative services through a total of 453 outpatient dialysis centers located in 13 countries outside of the United States.

Previous wording

(1)The reported operating income and adjusted operating income for the three months ended June 30, 2024 and March 31, 2024 includes foreign currency gains embedded in equity method income recognized from our APAC JV of approximately $0.4 million and $1.5 million, respectively.

Current wording

(1)The reported operating income and adjusted operating income for the three months ended September 30, 2024 and June 30, 2024 includes foreign currency (losses) gains embedded in equity method income recognized from our APAC JV of approximately $(3.7) million and $0.4 million, respectively.

Previous wording

(1)The reported operating income and adjusted operating income for the six months ended June 30, 2024 and June 30, 2023 includes foreign currency gains embedded in equity method income recognized from our Asia Pacific joint venture (APAC JV) of approximately $1.9 million and $0.5 million, respectively.

Current wording

(1)The reported operating income and adjusted operating income for the nine months ended September 30, 2024 and September 30, 2023 includes foreign currency (losses) gains embedded in equity method income recognized from our Asia Pacific joint venture (APAC JV) of approximately $(1.8) million and $1.0 million, respectively.

Previous wording

IKC revenues for the second quarter of 2024 decreased compared to the first quarter of 2024 due to a decrease in revenues from our special needs plans, partially offset by a net increase in shared savings. U.S. other ancillary revenues for the second quarter of 2024 remained relatively flat compared to the first quarter of 2024. International revenues for the second quarter of 2024 increased compared to the first quarter of 2024 due to acquired treatment growth.

Current wording

IKC revenues for the third quarter of 2024 decreased compared to the second quarter of 2024 due to a decrease in revenues related to the disposal of our physician services business, partially offset by an increase in revenues from our special needs plans and a net increase in shared savings. U.S. other ancillary revenues for the third quarter of 2024 remained relatively flat compared to the second quarter of 2024. International revenues for the third quarter of 2024 increased compared to the second quarter of 2024 due to acquired treatment growth.

Previous wording

IKC revenues for the six months ended June 30, 2024 increased compared to the six months ended June 30, 2023 due to a net increase in shared savings. U.S. other ancillary services revenues for the six months ended June 30, 2024 remained relatively flat compared to the six months ended June 30, 2023. Our international revenues for the six months ended June 30, 2024 increased from the six months ended June 30, 2023 due to acquired and non-acquired treatment growth and average reimbursement rate increases in certain countries.

Current wording

IKC revenues for the nine months ended September 30, 2024 decreased compared to the nine months ended September 30, 2023 due to decreased revenues from our special needs plans and the disposal of our physician services business, partially offset by a net increase in shared savings. U.S. other ancillary services revenues for the nine months ended September 30, 2024 remained relatively flat compared to the nine months ended September 30, 2023. Our international revenues for the nine months ended September 30, 2024 increased from the nine months ended September 30, 2023 due to acquired and non-acquired treatment growth and average reimbursement rate increases in certain countries.

Previous wording

Severance and other costs. During the fourth quarter of 2022, similar to U.S. dialysis, we committed to a plan to increase efficiencies and cost savings in certain general and administrative support functions and other overhead costs. As a result of this plan, we recognized expenses related to termination and other benefit commitments in our IKC business of $0.4 million during the six months ended June 30, 2023.

Current wording

Severance and other costs. During the fourth quarter of 2022, similar to U.S. dialysis, we committed to a plan to increase efficiencies and cost savings in certain general and administrative support functions and other overhead costs. As a result of this plan, we recognized expenses related to termination and other benefit commitments in our IKC business of $0.4 million during the nine months ended September 30, 2023.

Previous wording

IKC operating loss for the second quarter of 2024 compared to the first quarter of 2024 was impacted by decreased revenues and increased medical expenses related to our special needs plans, partially offset by a net increase in shared savings. U.S. other ancillary services operating loss for the second quarter of 2024 was relatively flat compared to the first quarter of 2024. International operating income for the second quarter of 2024 increased from the first quarter of 2024 primarily due to increased revenues, as described above, partially offset by acquisition-related costs.

Current wording

IKC operating loss for the third quarter of 2024 compared to the second quarter of 2024 decreased, primarily due to decreased medical costs and increased revenues related to our special needs plans, as well as the disposal of our physician services business. U.S. other ancillary services operating loss for the third quarter of 2024 was relatively flat compared to the second quarter of 2024. International operating income for the third quarter of 2024 increased from the second quarter of 2024 primarily due to increased revenues, as described above, partially offset by acquisition-related operating costs and decreased equity income resulting from fluctuations in foreign currency at our APAC JV.

Previous wording

IKC operating loss and adjusted operating loss for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 decreased, primarily due to increases in revenue, as described above, partially offset by continued investments in our integrated care support functions and increased expenses at IKC. Other U.S. ancillary services operating loss for the six months ended June 30, 2024 remained relatively flat compared to the six months ended June 30, 2023. International operating income for the six months ended June 30, 2024 decreased compared to the six months ended June 30, 2023 primarily driven by increased acquisition-related costs, partially offset by increases in revenue, as described above.

Current wording

IKC operating loss for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was impacted by severance costs, as described above. IKC operating loss and adjusted operating loss for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 decreased, primarily due to a net increase in shared savings, the disposal of our physician services business and decreased medical costs for our special needs plans. These increases were partially offset by continued investments in our integrated care support functions and decreased revenues from our special needs plans. Other U.S. ancillary services operating loss for the nine months ended September 30, 2024 remained relatively flat compared to the nine months ended September 30, 2023. International operating income for the nine months ended September 30, 2024 decreased compared to the nine months ended September 30, 2023 primarily driven by increased acquisition-related costs, partially offset by increases in revenue, as described above.

Previous wording

Corporate administrative support expenses for the quarter ended June 30, 2024 compared to the quarter ended March 31, 2024 decreased primarily due to decreased professional fees and a seasonal decrease in payroll taxes. Corporate administrative support expenses for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 decreased primarily due to decreased long-term incentive compensation, partially offset by increased compensation expenses.

Current wording

Corporate administrative support expenses for the third quarter of 2024 compared to the second quarter of 2024 increased primarily due to increased payroll taxes and professional fees. Corporate administrative support expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 were affected by accruals for legal matters, as described above. Corporate administrative support expenses and adjusted corporate administrative support expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 decreased primarily due to decreased long-term incentive compensation, partially offset by increased compensation expenses.

Previous wording

Our overall weighted average effective interest rate for the three months ended June 30, 2024 was 4.27% compared to 4.51% for the three months ended March 31, 2024. See Note 7 to the condensed consolidated financial statements for further information on the components of our debt.

Current wording

Our overall weighted average effective interest rate for the three months ended September 30, 2024 was 5.69% compared to 4.27% for the three months ended June 30, 2024. See Note 7 to the condensed consolidated financial statements for further information on the components of our debt.